Detroit debt restructuring could put new authority over Detroit water cost for Oakland, Macomb

By RYAN FELTON

Tuesday, June 25, 2013

The responsibility of handling the Detroit Water & Sewage Department's day-to-day operations could be transferred to an independent regional authority as part of the city's ongoing restructuring process.

If a proposal being pushed by Detroit Emergency Manager Kevyn Orr is adopted, the department will be stripped of its current name and allow a new Metropolitan Area Water and Sewer Authority to handle running the system, which has accrued about $5.8 billion in debt.

The authority would have the ability to issue new bonds, collect water and sewage fees and apply for state and federal loans if a deal is reached with counties that immediately surround the department.

Oakland County Water Resources Commissioner Jim Nash said turning the system over to an authority is the only way to keep it sustainable.

He said the city's bottomed-out credit rating makes it difficult to receive financing for upkeep on the system's aging infrastructure.

It's unclear whether residents would see lower rates, Nash said. But he stressed the importance of letting an authority take over the department in order to pursue future capital improvements.

The city's deteriorating financial situation makes it virtually impossible to lower interest rates on loans, in turn increasing capital costs, according to Orr's restructuring plan, issued in his first meeting with 150 of the city's creditors earlier this month.

"This increased cost of capital, coupled with the inability to raise rates and other factors, has resulted in significant under-spending on capital expenditures," Orr's report said.

The department's capital improvement program has $1.2 billion of infrastructure work is in the pipeline over the next four years.

Plans call for the city to either lease the assets of the system to the authority or have it operated under a concession agreement. In doing so, the design of the plan would generate at least $50 million in additional revenue a year for Detroit.

A seven-member board of commissioners would be established to govern the new authority, three of whom would represent the suburbs.

"Frankly, I don't think that's going to be acceptable," said Deputy Oakland County Executive Bob Daddow.

Daddow's concerns about the board's makeup is rooted in years of mismanagement and corruption at city departments, which existed most prominently in the era of former Mayor Kwame Kilpatrick.

If the authority avoids what Daddow labeled "Detroit business practices" and "installed something that would be more akin to what Oakland does, I think the operations would improve," he said.

Improving information flow from the department to the county, an ongoing problem, is another issue Daddow said would be addressed at meetings regarding the proposal.

"We have fought them for a long time on rate setting, if for no other reason then the information just wasn't being provided," Daddow said. "Transparency is a foreign word to them."

Unfunded legacy costs in the department are upward of $1.6 billion, Daddow said, and it's unclear in Orr's plan if that debt would be the new authority's prerogative.

The city's payment collection rate -- roughly 40 percent -- is a problem, especially with some substantial uncollected bills, including $15 million from Highland Park alone, he added.

Current employees could keep jobs under the authority, but would receive pension and health care arrangements in line with Orr's restructuring efforts for new hires in city departments.

Nash said he's still concerned the system could be privatized.

"That would be really bad," he said. "They'd have to make the costs (of operating) and make a profit," which could have a heavy impact on service rates for consumers.

The system currently provides services to almost 4 million residents in eight counties across the region, covering nearly 1,100 square miles. A new regional authority for the system would follow style of governance similar to Detroit's Cobo Center and the Detroit Zoo.